Sime Darby sees challenging year

Published: Saturday March 1, 2014 MYT 12:00:00 AM
Updated: Saturday March 1, 2014 MYT 8:33:57 AM
Sime Darby sees challenging year

BY WONG WEI-SHEN

KUALA LUMPUR: Plantation conglomerate Sime Darby Bhd is looking at a 2% fall in fresh fruit bunch (FFB) production to around 10 million tonnes for the financial year ending June 30, 2014 (FY14), due to extreme weather conditions.

In FY13, the company recorded 10.14 million tonnes in FFB production.

Given the challenging outlook for FFB production with the possible return of El Nino in the second half of 2014, president and group chief executive Tan Sri Mohd Bakke Salleh expects crude palm oil (CPO) price to improve this year.

“We look at the conditions in terms of the dynamics of the business and the natural surroundings – the weather conditions. All these points towards a firming up of the price,” said Bakke at a press conference for Sime Darby’s second-quarter results.

CPO price has moved up from an average of RM2,500 per tonne in January to RM2,700 in mid-February.

“Our average price for the last six months was lower, but since the beginning of the year it has moved up and we only have about four months to go. We have sold about 73% of our Malaysian production. As for our Indonesian production, we move with the market because we don’t engage in any forward sales so we sell as we produce the oil,” he said.

Up to June 30, the company was looking for CPO prices to come in between RM2,700 and RM2,900, he said, adding: “It could even touch 3,000.”

Sime Darby posted a 15% increase in net profit to RM818.31mil for the second quarter ended Dec 31, 2013, from RM708.54mil a year ago.

However, revenue came in lower at RM10.88bil from RM11.25bil in the same quarter last year.

Half-year net profit was lower at RM1.31bil against RM1.70bil it posted a year ago, on softer revenue of RM21.64bil.

Sime Darby had lowered its key performance indicators for 2014 with a targeted net profit of RM2.8bil from RM3.2bil a year ago.

“The group has undergone a challenging six months as the global economic and business environment continue to be volatile. Nonetheless, we remain resolute in our focus on improving operational efficiencies across the group and ensuring that each division address its challenges,” said Bakke in a statement.

The group’s plantation division saw a slight year-on-year decline of 3% in profit before interest and tax (PBIT) of RM507.5mil during the quarter due to lower FFB production, attributable to the change in cropping pattern in Indonesia. However, this was offset by the improvement in CPO price.

Sime Darby’s oil extraction rate (OER) increased 22.05% compared with 21.83% in the previous corresponding period.

PBIT for the midstream and downstream operations was 27% higher at RM37.2mil due to better performance from its refineries.

The group’s industrial division raked in lower PBIT of RM261.5mil in the second quarter, largely due to lower equipment deliveries and product support sales to the mining sector in Australia.

Meanwhile, operations in Malaysia, China and Hong Kong brought improvements of more than 100% in PBIT during the quarter.

PBIT for the motor division was lower at RM153.4mil in the second quarter, brought about by changes in government regulation and stiff competition in the mass brand vehicle segment in Singapore, Australia and New Zealand respectively.

Its property division recorded higher PBIT of RM72.2mil during the quarter, against RM61.2mil a year ago. “The commendable performance was underlined by higher sales and percentage of completion from project developments in Elmina East and Bandar Bukit Raja,” it said in a statement.

Under the energy and utilities division, the company saw a drop in PBIT to RM52.5mil compared with RM72.1mil previously.